Q1 2024 Kinsale Capital Group Inc Earnings Call

Okay.

Operator: Before we get started, let me remind everyone that during the course of this teleconference, Kinsale's management may make comments that reflect their intentions, beliefs, and expectations for the future. However, as always, these forward-looking statements are subject to certain risk factors, which could cause actual results to differ materially. These risk factors are listed in the company's various SEC filings, including the 2023 Annual Report on Form 10-K, which should be reviewed carefully. The company has filed a Form 8-K with the Securities and Exchange Commission that contains the press release announcing its first quarter results.

Before we get started let me remind everyone that through the course of the teleconference. Kinsale management may make comments that reflect their intentions beliefs and expectations for the future as always these forward looking statements are subject to certain risk factors, which could cause actual results to differ materially. These risk factors are listed in the company's various SEC.

T SEC filings, including the 2023 annual report on Form 10-K, which should be reviewed carefully.

Company has furnished a form 8-K with the Securities and Exchange Commission that can change the press release announcing its first quarter results and sales management May also reference certain non-GAAP financial measures in the call today, a reconciliation of GAAP to these matters can be found in the press release, which is available at the company's website at www dot.

Operator: Kinsale's management may also reference certain non-GAAP financial measures in the call today. A reconciliation of GAAP to these matters can be found in the press release, which is available on the company's website at www.kinsalecapitalgroup.com. I will now turn the conference over to Kinsale's Chairman and CEO, Mr. Michael Kehoe. Please go ahead, sir.

You can say okay.

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I'll turn the conference over to <unk>, Chairman and CEO, Mr. Michael Kehoe. Please go ahead Sir.

Michael Patrick Kehoe: Thank you, operator, and good morning everyone. As is our usual approach, Bryan Petrucelli, our CFO, and Bryan Haney, our president and COO, and I will each make a few comments, and then we'll move on to Q&A. In the first quarter of 2024, Kinsale's operating earnings per share increased by 43.4% and gross written premium grew by 25.5% over the first quarter of 2023. For the quarter, the company posted a combined ratio of 79.5%, and it posted an operating return on equity of 28.9%.

Michael Patrick Kehoe: Thank you operator, and good morning, everyone.

Michael Patrick Kehoe: As is our usual approach Bryan Petrucelli <unk> our CFO.

Brian Donald Haney: Brian Haney.

Michael Patrick Kehoe: Our president and CEO.

Speaker Change: Will each make a few comments and then we'll move on to Q&A.

In the first quarter of 2024 can sales operating earnings per share increased by 43, 4%.

Speaker Change: Gross written premium grew by 25, 5%.

Speaker Change: For the first quarter of 2023.

Speaker Change: For the quarter the company posted a combined ratio of 79, 5%.

Speaker Change: And it posted an operating return on equity of 28, 9%.

Michael Patrick Kehoe: The company's strategy of disciplined E&S underwriting and technology-enabled low costs drives these results and allows us to generate attractive returns and take market share from competitors at the same time, while we've just mentioned growth in gross written premium. 1st quarter to 25.5%, from 33.8% in the fourth quarter of 2023 and down from the 40% growth we've experienced over the last several years. This deceleration over the last couple of quarters is mostly driven by the property markets returning to a normal level of competition from the crisis-like environment in 2022 and early 2023.

Speaker Change: The company's strategy of disciplined E&S underwriting.

Speaker Change: Technology enabled low costs drive these results and allows us to generate attractive returns.

Speaker Change: Take market share from competitors at the same time.

Speaker Change: As just mentioned growth in gross written premium.

Speaker Change: First quarter to 25, 5%.

Speaker Change: From 33, 8% in the fourth quarter of 2023.

Speaker Change: And down from the 40% growth.

Speaker Change: We've experienced over the last several years.

Speaker Change: This deceleration over the last couple of quarters is mostly driven by the property markets return to a normal level of competition.

Speaker Change: The crisis like environment in 2022 in early 2023.

Michael Patrick Kehoe: Property continues to be an attractive opportunity with favorable pricing and growth rates, and we remain optimistic about this area of the E&S market looking forward. The casualty market remains attractive as well, with levels of competition varying by product line. Our growth rate in casualty differs from one line to another.

Speaker Change: Property continues to be an attractive opportunity with favorable pricing and growth rates and we remain optimistic about this area of the E&S market looking forward.

Speaker Change: The casualty market remains attractive as well with levels of competition varying by product line.

Speaker Change: Our growth rate in casualty differs from one line to another.

Michael Patrick Kehoe: But in general, we see this area as steady to slightly improving. Bryan Haney will offer some additional commentary on the E&S market here in a moment. Overall, the PNC industry continues to work through challenges around frequency and severity, inflation in general, and rising loss costs in particular, an expanding and at times unpredictable tort system, litigation financing, and loss reserve adequacy, in particular on longer tail current lines. All of these challenges and a variety of others should contribute to driving stability and growth opportunities in the market for the foreseeable future.

Speaker Change: But in general we see this area as steady to slightly improving.

Speaker Change: Ryan Hany will offer some additional commentary on the E&S market here in a moment.

Speaker Change: Overall, the P&C industry continues to work through challenges around frequency and severity astral.

Speaker Change: Masterpiece.

Speaker Change: Inflation in general and rising loss cost in particular on.

Brian Donald Haney: On expanding and at times unpredictable towards system litigation financing and loss reserve adequacy in particular on longer tail current lines.

Brian Donald Haney: All of these challenges and a variety of others.

Brian Donald Haney: Should contribute.

Brian Donald Haney: To drive stability and growth opportunity in the market for the foreseeable future.

Michael Patrick Kehoe: Beyond the industry-wide challenges noted above, it's our own business strategy here at Kinsale that drives our confidence and prospects for significant future profit and growth. It's the focus on smaller risks within the ENS market. The absolute control we exercise over our underwriting and claims management operations. The best in class service level and risk appetite we provide to our brokers, and our technology-driven, low-cost operation differentiate Kinsale from competitors across the industry.

Brian Donald Haney: Beyond the industry wide challenges noted above its our own business strategy here I can sale that drives our confidence.

Brian Donald Haney: Prospects for significant future profit and growth.

Brian Donald Haney: Our focus on smaller risks within the E&S market.

Brian Donald Haney: The absolute control, we exercised over our underwriting and claims management operations.

Brian Donald Haney: The best in class service level and risk appetite, we provide to our brokers and.

Brian Donald Haney: And our technology driven low cost operation.

Brian Donald Haney: Differentiate can sail from competitors across the industry.

Michael Patrick Kehoe: And in many ways, the competitive advantages we have will become even more significant as the market becomes more competitive in the years ahead. And finally, just a reminder that establishing conservative reserves to pay future claims is a fundamental part of our business strategy. As we have noted before, some of the original conservatism of the 2016 through 2019 accident years has been eroded away by inflation. Although with booked ultimate loss ratios in the low 60% range, these accident years will remain highly profitable.

Brian Donald Haney: And in many ways the competitive advantages, we have become even more significant.

Brian Donald Haney: The market becomes more competitive in the years ahead.

Brian Donald Haney: And finally, just a reminder, that establishing conservative reserves to pay future claims is a fundamental part of our business strategy as.

Brian Donald Haney: As we've noted before some of the original conservatism of the 2016 through 2019 accident years has been eroded away by installation.

Brian Donald Haney: Although with booked ultimate loss ratios in the low 60% range.

Brian Donald Haney: These accident years will remain highly profitable.

Michael Patrick Kehoe: These years have developed favorably on an inception to date basis, except for the 2018 year, which is slightly adverse. From the 2020 accident year looking forward, our pricing has exceeded loss cost trends, and we have been more cautious releasing reserves, giving us full confidence that our overall reserves are in the best position in our company's history. And likewise, investors should have confidence in the strength of our balance sheet and the prospects for continued favorable reserve development in the years ahead. And with that, I'm going to turn the call over to Brian Petrucelli.

Brian Donald Haney: These years have developed favorably on an inception to date basis, except for the 2018 year, which is slightly adverse.

Brian Donald Haney: From from the 2020 accident year looking forward, our pricing has exceeded loss cost trend and we have been more cautious releasing reserves.

Brian Donald Haney: Giving us full confidence that our overall reserves are in the best position in our company's history and.

Brian Donald Haney: And likewise investors should have confidence in the strength of our balance sheet and the prospects for continued favorable reserve development in the years ahead.

Brian Donald Haney: And with that I'm going to turn the call over to Bryan Petrucelli.

Bryan Paul Petrucelli: Thanks Mike. Another great quarter from a profitability perspective, with net income and net operating earnings increasing by 77.3% and 43.8%, respectively. The 79.5% combined ratio for the quarter includes 2.7 points from net favorable prior year loss reserve development compared to 3.7 points last year with negligible cat losses in either period. As Mike mentioned, we're taking a more cautious approach to releasing reserves and setting current year loss ratio pay. The expense ratio continues to benefit from higher seating commissions from the company's casualty and commercial property proportional reinsurance agreements as a result of growth in the lines of business seeded into those treaties.

Bryan Paul Petrucelli: Thanks, Mike.

Bryan Paul Petrucelli: Another great quarter from a profitability perspective, with net income and net operating earnings increasing by 77, 3% and 43, 8% respectively.

Bryan Paul Petrucelli: With 79, 5% combined ratio for the quarter includes two seven points from net favorable prior year loss reserve development development compared to three seven points last year with net negligible cat losses in either period.

Bryan Paul Petrucelli: As Mike mentioned, we're taking a more cautious approach to releasing reserves and then setting current year loss ratio picks.

Bryan Paul Petrucelli: The expense ratio continues to benefit from higher ceding commissions from the Companys casualty and commercial property proportional reinsurance agreements as a result of growth in our lines of business ceded under those treaties.

Bryan Paul Petrucelli: The expense ratio decreased by a point from 21.7% in the first quarter of 2023 to 20.7% this year, with almost all coming from lower net commissions on the investment side. Net investment income increased by 59.1% over last year as a result of continued growth in the investment portfolio generated from strong operating cash flows and higher interest rates, with a gross return of 4.3% for the year compared to 3.7% last year. We haven't made any significant changes to our investment strategy and continue to monitor inflation, interest rates, and related Fed policy commentary, and we'll adjust as circumstances warrant.

Bryan Paul Petrucelli: <unk> ratio decreased by one point from 21, 7% in the first quarter of 2023% to 27% this year with almost all coming from lower net commissions.

Bryan Paul Petrucelli: On the investment side.

Bryan Paul Petrucelli: Net investment income increased by 59, 1% over last year.

Bryan Paul Petrucelli: As a result of continued growth in the investment portfolio generated from strong operating cash flows and higher interest rates with a gross return of four 3% for the year compared to three 7% last year we.

Bryan Paul Petrucelli: We haven't made any significant changes to our investment strategy and continue to monitor inflation interest rates and related fed policy commentary and we will adjust this circuit circumstances warrant.

Bryan Paul Petrucelli: New money yields are averaging in the low to mid 5% range, and an average duration of 2.8 years is consistent with year end. And lastly, diluted operating earnings per share continue to improve and was $3.50 per share for the quarter compared to $2.44 per share for the first quarter of 2023.

Bryan Paul Petrucelli: New money yields are averaging in the low to mid 5% range and an average duration of two eight years consistent with year end.

Bryan Paul Petrucelli: And lastly, diluted operating earnings per share continues to improve and was three $3 50 per share for the quarter compared to $2 44 per share for the first quarter of 2023 with that I'll pass it over to Brian Haney.

Bryan Paul Petrucelli: With that, I'll pass it over to Bryan Haney. Thanks, Bryan.

Bryan Haney: Thanks, Bryan. As mentioned earlier, premiums grew 25.5% in the first quarter. We continue to see growth in most of our divisions. Casualty and property continue to grow, and we are seeing particularly strong growth in our small property, entertainment, and general casualty divisions as well as in some of our newer divisions like high-value homeowners and commercial auto. We operate in a wide range of markets, not just one monolithic market, and there are some areas where there's much more competition and growth that's harder to come by, such as our life sciences and management liability division.

Brian Donald Haney: Brian as mentioned earlier premium grew 25, 5% in the first quarter, we continue to see growth in most of our divisions.

Brian Donald Haney: Casualty and property continue to grow and we are seeing particularly strong growth in our small property entertainment and general casualty divisions as well as in some of our newer divisions like high value homeowners and commercial auto.

Brian Donald Haney: We operate in a wide range of markets not one monolithic market and there are some areas, where there's much more competition and growth is harder to come by such as our life Sciences and management liability divisions.

Bryan Haney: Submission growth continues to be strong in the low 20s for the quarter, consistent with most of 2023. This number is subject to some variability, but in general, we view submissions as a leading indicator of growth, and so we see the submission growth rate as a positive signal. Turning to rates, we have in past quarters reported what we call real rate changes, which are nominal rate changes addressed for trend. While we felt that that was a better measure of how rate adequacy was changing, given that the rest of the market reports nominal rate changes, we felt that our approach created the potential for confusion.

Brian Donald Haney: You mentioned growth continues to be strong in the low <unk> for the quarter consistent with most of 2023.

Brian Donald Haney: Those numbers are subject to some variability, but in general we view submissions as a leading indicator of growth and so we see this submission growth rate is a positive signal.

Brian Donald Haney: Okay.

Brian Donald Haney: Turning to rates, we had in past quarters reported what we called real rate changes, which are nominal rate changes adjusted for trend.

While we felt that that was a better measure.

Brian Donald Haney: Rate adequacy was changing given that the rest of the market reports nominal rate change we felt that our approach created the potential for confusion that being the case, we are pivoting back to reported nominal rate changes.

Bryan Haney: That being the case, we are pivoting back to reporting nominal rate changes. So we see rates being up around 7% on a nominal basis, down from around 8% again on a nominal basis last quarter. It's important to keep in mind, as I said earlier, the market isn't a monolith. In some areas, our rates are going up higher than 7%; in some areas, they're going up less. And in some targeted areas, we may even cut rates because the margins are so high that we feel the trade-off between rates and growth is worthwhile.

Brian Donald Haney: So we see rates being up around 7% on a nominal basis down from around 8% again on a nominal basis last quarter.

Brian Donald Haney: It's important to keep in mind as I said earlier the market is in a monolith.

Brian Donald Haney: In some areas our rates are going up higher than 7% in some areas are going up less and in some targeted areas. We may even cut rates because the margins are so high that we feel that tradeoff between rates and growth is worthwhile, but overall at 7% still puts us ahead of trend and we feel that the business. We are putting on our books as the best price business in our history.

Bryan Haney: But overall, that 7% still puts us ahead of trend, and we feel that the business we are putting on our books is the best-priced business in our history. Turning to inflation, we feel that the adverse development you see in the industry on some longer-tailed casualty lines is due at least in part to a spike in inflation. The difficulty with long-tailed lines is that you set prices and initial reserves with the knowledge you have at the time, but then there's a long lag between the pricing of the business and the payment of claims, during which unforeseen events can affect the value of those claims.

Brian Donald Haney: Turning to inflation, we feel that the adverse development you see in some in the industry on some longer tail casualty lines.

Brian Donald Haney: Due at least in part to a spike in inflation.

Brian Donald Haney: The difficulty with long tail lines that you set prices and initial reserves with the knowledge you have at the time, but then there is a long lag between the pricing of the business and the paying of the claims during which unforeseen events can affect the value of those claims.

Bryan Haney: It's fair to assume no one in the industry saw the pandemic coming, and few could have foreseen the significant expansion of the money supply that followed. That additional money in the economy set off a wave of inflation that disproportionately hit some costs more than others, such as construction costs.

Brian Donald Haney: Fair to assume no one in the industry saw the pandemic coming in <unk> could have foreseen the significant expansion of the <unk> supplier followed.

Brian Donald Haney: That additional money in the economy set off a wave of inflation that disproportionately hit some cost more than others such as construction costs.

Bryan Haney: This had the effect of effectively repricing the reserves for longer-tailed cash reliance. The uncertainty created by this longer payout pattern, in some ways, reinforces the wisdom of our conservative approach to reserves that Mike referred to earlier. There are a lot of unknowns in setting reserves, and there's a lot that can happen between the setting of those reserves and the paying of the claims, so it's incumbent on us to err on the side of caution.

Brian Donald Haney: This had the effect of effectively re pricing the reserves for longer tailed casualty lines.

Brian Donald Haney: The uncertainty created by this longer payout pattern in some lines reinforces the wisdom of our conservative approach to reserves that Mike referred to earlier.

Brian Donald Haney: There are a lot of unknowns and Saturn reserves and Theres a lot that can happen in between the setting of those reserves in the payment of claims so it's incumbent on us to err on the side of caution.

Bryan Haney: And while inflation has moderated somewhat from its highs, it would seem that it will take longer to get back to the Fed's target of 2% than many prognosticators have forecast. And that may continue to cause reserve issues for those bar competitors in a weaker financial position.

Brian Donald Haney: And while inflation has moderated somewhat from its highs it would seem that it will take longer to get back to the feds target of 2% in many prognosticators of forecast.

Brian Donald Haney: And that May continue to cause reserving issues for those of our competitors in a weaker financial position. This gives us a sense of optimism, particularly around the cap.

Michael Patrick Kehoe: This gives us a sense of optimism, particularly around cash, our biggest market. This was another good quarter, and again, we are happy with the results. And with that, I'll hand it back over to Mike. Okay, operator, we're ready for any questions in the

Brian Donald Haney: The biggest market.

Brian Donald Haney: This was another good quarter at again, we are happy with the results and with that I'll hand, it back over to Mike.

Mike: Okay, operator, we're ready for any questions in the queue.

Operator: At this time, I would like to remind everyone, in order to ask a question, press star, then the number 1 on your telephone keypad. Your first question comes from the line of Michael Zaremski from BMO Capital Markets. Your line is open.

Speaker Change: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

Speaker Change: Our first question comes from the line of Michael Zaremski from BMO capital markets. Your line is open.

Jack: Hi, good morning. This is Jack. On behalf of Mike.

Speaker Change: Hi, Good morning, this is Jack on for Mike.

Unknown Executive: Our first question is on the loss ratio. Historically, we've seen a pattern of seasonality, and that reserve releases tend to be higher in the early part of the year and then decelerate. And the opposite trend occurs in the underlying accident, your loss ratio, and that starts out higher and then improves. So given your comments about adding conservatism to reserves in light of inflationary trends, do you expect that to change the historical seasonality pattern? I don't think we should

Jack: First question is on the loss ratio.

Jack: So historically, we've seen a pattern of seasonality in that reserve releases tend to be higher in the early part of the year and then decelerate.

Jack: Then the opposite tried to currently underlying accident year loss ratio and then it starts up higher than.

Jack: And that improves.

Jack: So just given your comments about adding conservatism to reserves in light of inflationary trends do you expect that to change the historical seasonality pattern.

Speaker Change: I don't think we expect it to change.

Unknown Executive: I don't think we expect it to change. I think the starting point is just slightly higher because we're setting slightly higher loss picks and we're releasing reserves at a slightly slower pace. And that's, Unknown Attendee, Bill Carcache, Kinsale Capital Group Inc., kind of an additional measure of conservatism against a backdrop of inflation, etc.

Speaker Change: I think the starting point is slightly higher.

Speaker Change: Because we're sending slightly higher loss picks and we're releasing reserves set aside a slightly slower pace.

Speaker Change: And thats purely.

Speaker Change: Kind of a.

Speaker Change: An additional measure of conservatism against a backdrop of inflation et cetera, and the economy.

Unknown Executive: Thank you. And then second question.

Speaker Change: Okay.

Speaker Change: Got it thank you and then.

Unknown Executive: So Kinsale has opportunistically grown in property in recent years, and that's paid off well for shareholders. I guess if property pricing decelerates, will Kinsale look to grow less in those lines of business, or are absolute margins still excellent, even if property prices are less positive? And I guess, relatedly, is any property business expected to leave the E&S marketplace? And if it does, can Kinsale access it in the standard or non-E&S marketplace as well?

Speaker Change: The second question said consoles opportunistically grown in property in recent years, and that's paid off well for shareholders.

Speaker Change: I guess, if property pricing Decelerates, we'll look to grow less in those lines of business or absolute margins still excellent.

Speaker Change: Even if pricing is less positive and I guess relatedly is there any property business expected to leave the E&S marketplace.

Speaker Change: It does Ken so activating with standard or non E&S marketplace as well.

Unknown Executive: I would say that property pricing is probably at a 20-year high. And, you know, as we said in our prepared remarks, we see that as a very attractive opportunity for growth. You know, we're always going to prioritize profitability over growth. So, you know, depending on where the market trends are in the future, it will probably have a lot to do with how rapidly that line of business grows. We're very optimistic. I don't know, are we not seeing any kind of work, or inroads from standard companies at the moment?

Speaker Change: I would say that.

Speaker Change: Property pricing is probably on a 20 year high.

Speaker Change: And as we said in our prepared remarks, we see that as a very attractive opportunity for growth.

Speaker Change: <unk>.

Speaker Change: We're always going to prioritize profitability over growth.

Speaker Change: <unk>.

Speaker Change: Depending on where the market trends in the future, we'll probably have a lot to do with how rapidly that lines.

Speaker Change: Line of business grows.

Speaker Change: We're very optimistic.

Speaker Change: I don't know were not seeing any kind of work.

Speaker Change: Sure.

Speaker Change: Inroads from standard companies at the moment, we're not and I think yeah, Jackup Mike's point, the business has really attractive right now and so.

Unknown Executive: We're not, and I think, yeah, to echo Mike's point, the business is really attractive right now. And so, we're still growing. To specifically answer one question you had, we do not have an admitted company. So no, we would not write an admitted business.

Speaker Change: Worst overall.

Speaker Change: Thank you so to specifically answer one question you add we do not have an admitted companies. So now we would not write admitted business.

Speaker Change: Okay.

Speaker Change: It's helpful. Thank you.

Speaker Change: Thanks, Jeff.

Operator: Your next question comes from the line of Mark Hughes from Truist. Your line is open.

Speaker Change: Your next question comes from the line of Mark Hughes from <unk>. Your line is open.

Mark Douglas Hughes: Yeah, thank you. Good morning. Good morning, Mark. Mike or Brian or Brian, what do you make of the state ENS data that seemed to show up? Meaningful deceleration, particularly in March. What do you make of that? And did you see anything like that in your own experience? Any kind of volatility at the end of the quarter?

Mark Douglas Hughes: Yes, Thank you and good morning.

Good morning, Mike or Brian or Brian what do you make of the.

Mark Douglas Hughes: State E&S data that seemed to show a meaningful.

Mark Douglas Hughes: Meaningful deceleration, particularly in March what do you make of that and the juicy anything like that in your own experience any kind of.

Mark Douglas Hughes: Volatility at the end of the quarter.

Michael Patrick Kehoe: I don't know what to make of it, Mark, other than that the ENS market has grown at a double-digit clip for six years in a row, and so I think the 7% growth in Q1 is not a surprise. I don't know if there can be lags in the recording of some of that data or not, so I don't really have anything additional to add there. You know, we, you know, our overall growth slowed slightly compared to where it was, but, given the dramatic growth of 40%, give or take, over a six-year period, it was not unexpected, right? We're still growing at a very rapid rate, and we're still very optimistic about, you know, our growth prospects looking forward.

Speaker Change: I don't know what to make of it mark other than.

Speaker Change: The E&S market has grown at a double digit clip for six years in a row.

Speaker Change: And so I think the 7% growth in Q1.

Speaker Change: It is not a surprise.

Speaker Change: I don't know how if there can be lags in our reporting and some of that data or not so unemployment have anything additional that sir.

Speaker Change: We.

Speaker Change: Our overall growth slowed slightly compared to where it spanned budd.

Speaker Change: Given the dramatic growth of 40%.

Speaker Change: Percent give or take over a six year period.

Speaker Change: It was not unexpected Brian we're still growing at a very rapid rate and we are still very optimistic about.

Speaker Change: Growth prospects.

Speaker Change: Looking forward.

Speaker Change: Yes.

Unknown Executive: Unknown Speaker: Are you able to share the breakout in terms of growth, the growth rates in property versus the growth in casualties for the quarter?

Speaker Change: Are you able to share the breakout in terms of growth the growth rates in property versus the growth in casualty in the quarter.

Unknown Executive: We don't break it out, but it varies quite a bit from one division to the next. We've got 24 different underwriting divisions, each of which is organized either around an industry segment or a coverage area. And so, you know, you see rapid growth or, you know, pretty material variance from one to the next. As Brian was indicating, it's, it's really a mistake to look at ENS as one monolithic market.

Speaker Change: We don't break it out but it's it varies quite a bit from one division to the next we've got 24 different underwriting divisions, each of which is organized either around an industry segment or a coverage.

Speaker Change: And so you would see a rapid growth.

Speaker Change: Yes.

Speaker Change: Pretty material variance from one to the next as Brian indicated.

Speaker Change: It's really a mistake to look at E&S is one monolithic market theirs.

Unknown Executive: There are a lot of sub-markets within that, and that's, I think, reflected in the relative growth you hit on some of the divisions that are growing more rapidly and some that are growing more slowly already. Yeah, they're even. One exercise you could go through is to look at the statutory data, and that would show kind of the pattern Mike was talking about, where property, one of the reasons the growth rate was 40% for as long as it was, was because property just had this extreme crisis market. And so, you know, the underlying casualty market has been strong all along, and that, as Mike said, continues to be strong.

Speaker Change: A lot of Submarkets within that and that's I think reflected in the relative growth you hit on some of the divisions that are growing more rapidly than some that have grown more slowly than revenue.

Speaker Change: Yes.

Speaker Change: Kevin.

Speaker Change: One exercise you can go through areas to look at the stat statutory data that would show kind of the pattern, Mike was talking about where property one of the reasons that the growth rate was 40% for as long as it was was property just had this extreme crisis market.

Speaker Change: Yes.

Speaker Change: The underlying casualty market has been strong all along and that as Mike said continued to be strong.

Unknown Executive: Yeah. How should we think about 2Q? You had such a strong growth rate in this quarter last year. Should we assume that you're going to renew all that business and grow on the side as well, or does this present an unusual comparison? And so Q2 might be slower just because of the, you know, tough comp.

Speaker Change: How should we think about.

Speaker Change: Q U.

Speaker Change: Strong growth rate in this quarter last year.

Speaker Change: Should we assume that youre going to renew all of that business and grow on the side as well or does it.

Speaker Change: An unusual comparison.

Speaker Change: And so Q2 might be slower just because of the.

Unknown Executive: We don't forecast growth. We don't, you know, we don't offer growth guidance, but I think that's an interesting observation, Mark.

Speaker Change: The tough comp.

Speaker Change: We don't forecast growth, we don't we don't offer growth guidance, but I think that's an interesting observation mark.

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Speaker Change: Tough comp very good yes.

Unknown Executive: Very good. Yeah. And then finally, the tax rate. What's a good full-year tax rate?

Speaker Change: And then finally, the tax rate, what's a good full year tax rate.

Unknown Executive: Yeah, so I think Mark

Speaker Change: Yes.

Unknown Executive: Yeah, so I think Mark, if you take a look at our tax rate, sort of over a 12 month period, that'll give you a better sort of guide as to what to pick. You know, there were a fair amount of stock options exercises in the first quarter, so that drove it down. But I think if you go back and look at the past four quarters, and you can kind of come up with a pretty good pick from that.

Speaker Change: I think mark if you take a look at our tax rate sort of over a 12 months period that will give you a better sort.

Speaker Change: A guide as to what to pick.

Speaker Change: Yes, there were a fair amount of stock options exercised in the first quarter said that drove it down.

Speaker Change: But I think if you go back and look at the past four quarters and you can kind of you can come up with a pretty good pick from that.

Speaker Change: Very good thank you.

Speaker Change: Thanks Mark.

Speaker Change: Sure.

Operator: Your next question comes from a line of Andrew Andersen from Jeffries. Your line is open.

Speaker Change: Your next question comes from the line of Andrew Anderson from Jefferies. Your line is open.

Andrew E. Andersen: Hey, good morning. I think on the 4Q call, recognizing you're not really trying to give guidance, but I think you said you wouldn't take issue with thinking flat underlying loss ratios for 24. Does that still stand, or does the increase in accident-year picks this quarter now mean full year 24 could perhaps be, you know, one point higher compared to 23's 57.4?

Andrew E. Andersen: Hey, good morning, I think on the <unk> call recognizing you're not really trying to give guidance, but I think you said you wouldn't take issue with thinking flat underlying loss ratios for 24 does that still stand or does the increase in accident year picks. This quarter now I mean full year 'twenty four could perhaps be one point higher compared to.

Andrew E. Andersen: <unk> 57 four.

Michael Patrick Kehoe: Yeah, I think I think, Andrew, this is Mike. We're looking every quarter at Actual Loss Activity and, obviously, reevaluating all the actuarial assumptions we make. And so I would say that, you know, this past quarter, consistent with prior years, our actual loss activity was below expectations. It's just that we're looking at a backdrop of inflation and lost cost trends, etc., and we always want to position the company to be in a very conservative posture. So, you know, I think the one point observation that you had is a good one.

Speaker Change: Yes, I think I think.

Mike: Andrew This is Mike.

Mike: We're looking every quarter.

Mike: Actual loss activity and obviously reevaluating all of the actuarial assumptions we make.

Speaker Change: And so I would say.

Speaker Change: This quarter this past quarter consistent with <unk>.

Mike: Prior years, our actual loss activity it was below expectations.

Mike: We're looking at a backdrop inflation.

Mike: Loss cost trend et cetera.

Mike: And we always want to position the company to be in a very conservative posture. So.

Mike: I think the one point.

Speaker Change: Observation that you had is a good one.

Unknown Executive: And I think you mentioned some new divisions kind of launching for growth, commercial auto, and homeowners. Where are we in the development of that?

Speaker Change: Okay.

Speaker Change: And I think you mentioned some new divisions.

Speaker Change: Kind of watching for growth commercial auto and homeowners where are we in the development for that is that contributing meaningfully to growth currently and I think the commercial auto comment was new is that correct.

Unknown Executive: Is that contributing meaningfully to growth currently? And I think the commercial auto comment was new. Is that correct? No, it's not new. We've been in that for a while.

Unknown Executive: No, it's not new. We've been doing that for a while.

No that's not new we've been in that for a while if you look at the 10-K, we break out production by underwriting division on an annual basis, but we don't do it quarterly.

Unknown Executive: If you look at the 10K, we break out production by underwriting division on an annual basis, but we don't do it quarterly. But the annual numbers will give you a pretty good insight into, You know, I would say they're not contributing to the total or not contributing meaningfully now. But if you look at the kind of way product development works, you know, we start out slowly, we don't try to corner a market, and then we grow over time.

Speaker Change: But the annual numbers, we'll give you a pretty good insight into it.

Speaker Change: I would say there.

Speaker Change: So the total or not contributing meaningfully now, but if you look at kind of the way product around it works.

Speaker Change: <unk>.

We start out slow and we don't try to corner a market.

Speaker Change: And then we grow over time and then so maybe 345 years down the road it starts becoming more and more meaningful.

Unknown Executive: And then, you know, maybe three, four, or five years down the road, it starts becoming more and more meaningful. So, you know, if you look at we have probably added, I think, 14 divisions since we started the company, and they all have that sort of trajectory.

Speaker Change: So if you look at we probably added I think 14 division since we started the company.

Speaker Change: And they all have that sort of trajectory.

Operator: Again, if you'd like to ask a question, it's star one on your telephone keypad. Your next question comes to the line of Bill Carache from Wolf Research. Your line is open.

Speaker Change: Thank you.

Speaker Change: Thanks, Andrew.

Speaker Change: Again, if you'd like to ask a question at Star one on your telephone Keypad. Your next question comes from the line of Bill <unk> from Wolfe Research. Your line is open.

Bill Carcache: Thank you. Good morning.

Bill: Thank you good morning.

Bill: Okay.

Unknown Executive: As the industry's low-cost producer, do you think Kinsale is leveraging its competitive advantage to the extent possible? How much room is there for Kinsale to potentially nudge prices a little bit lower to sustain longer growth? And, you know, your operating ROEs are certainly very strong, but is there room for you to sort of accept a slightly lower ROE in exchange for, you know, incremental growth? And that kind of just, there's a lot there, but it sort of raises questions around how you think about the trade-off between returns, growth, and pricing.

Bill: As the industry's low cost producer do you think can sale is leveraging its competitive advantage to the extent possible. How much room is there for sale to potentially nudge pricing, a little bit lower to sustained longer growth.

Bill: And Youre operating ROE are certainly very strong but is there room for you to sort of accept a slightly lower Roe.

Bill: In exchange for <unk>, Inc.

Bill: Incremental growth to that kind of just there's a lot there, but it's sort of raises questions around how you think about the tradeoff between returns growth and pricing.

Bryan Haney: Hey Bill, this is Bryan.

Bill: Hey, Bill this is Brian Haney.

Bryan Haney: Hey, Bill, this is Brian Haney. So yeah, obviously, what we're trying to do is maximize wealth creation for the investors. And I think that starts with maximizing underwriting profit. And so what we're really trying to solve for is what combination of ROE and growth is the right number to maximize that. I think you're absolutely correct.

Bill: Yes, obviously.

Brian Donald Haney: What we're trying to do is maximize the wealth building for the investors and I think that starts with maximizing underwriting profit and so what we're really trying to solve for is what combination of ROA and growth is the right number to maximize that.

Bill: You are absolutely correct, we don't have to have a 30 ish ROA to maximize.

Bryan Haney: We don't have to have a 30 ish ROA to maximize book value. So, in certain areas, we are looking at cutting rates to grow faster in certain areas, you know, in some of the capital lines. We don't need to do that because we're growing fast enough as it is. So yeah, division by division, we're looking at that exact calculation regularly.

Bill: Book value.

Bill: So.

Bill: In certain areas, we are looking at cutting rates.

Bill: To grow faster in certain areas.

Bill: The casualty lines, we don't need to do that because we are growing.

Bill: Fast enough as it is.

Bill: So yes it.

Bill: Division by Division, we're looking at that exact calculation.

Bill: <unk>.

Bryan Haney: And again, the goal is not to have a certain goal. The goal is to drive as much value to the company and the investors as we can. But there is definitely room, and you're right, being a low-cost operator provides us with a leeway. I think that our competitors don't have that. And just following up on that, that's why I made the comment earlier about the fact that in a more competitive market, that low cost feature of our business model becomes even more powerful.

Bill: And again the goal is not to have a certain.

Bill: Goal is to drive as much value to that.

Bill: The company and the investors as we can.

Bill: But there is definitely room and you are right being a low cost operator provides us.

Bill: <unk> I think that our competitors don't have.

Bill: And then just following up on that that's why I made the comment earlier about the fact that in a more competitive market that low cost.

Feature of our business model becomes even more powerful.

Michael Patrick Kehoe: That's very helpful. Thank you. And as you think about sort of the longer term sustainability of, of the growth of, of the revenue stream for the business, how do you view the possibility of possibly unlocking a new market opportunity, perhaps in the specialty admitted space? Just curious whether that's a potential vehicle for, you know, longer term growth.

Speaker Change: That's very helpful. Thank you.

Speaker Change: As you think about.

Speaker Change: Sort of the longer term sustainability of the growth of <unk>.

Speaker Change: The revenue stream for the business, how do you view the possibility of possibly unlocking a new market opportunity, perhaps in the specialty admitted space.

Speaker Change: Curious whether that's.

Speaker Change: Potential vehicle for.

Speaker Change: Longer term growth.

Michael Patrick Kehoe: Yeah, Bill, this is Mike. I would say in the next couple of years, we're going to continue to just execute the current plan, focusing on building out our position in the E&S market. We're doing a lot of work with new product development, and we're doing a lot of work with system enhancements. If you go out several years, I think it's highly likely we'll be in the specially admitted space, but not the next couple.

Speaker Change: Yes, Bill this is Mike I would say in the next couple of years, we're going to continue to just execute the current plan.

Mike: Focusing on building out our position in the E&S market and we're doing a lot of work with new product development and we're doing a lot of work with system enhancements. If you go out several years I think it's highly likely we will be in the specialty admitted space.

Mike: But not the next couple of years.

Michael Patrick Kehoe: And if I could squeeze in one last one, I guess one could argue that, you know, many of the top carriers in the NS space are also the same players writing admitted business, and they have little to gain from seeing that business migrate back to the admitted markets. Maybe, could you speak to whether you're seeing any evidence of admitted carriers trying to use pricing to win business back from ENS?

Speaker Change: Understood and if I could squeeze in one last one.

Speaker Change: One could argue that many of the top carriers in the E&S space are also the same players writing admitted business.

Speaker Change: They have little to gain from seeing that business migrate back to the admitted markets.

Speaker Change: Maybe could you speak to whether youre seeing any evidence.

Speaker Change: Of.

Speaker Change: Admitted carriers trying to use pricing to win business back from from from E&S.

Michael Patrick Kehoe: The short answer is no, we're not saying, you know, business flow out of ENS into admitted. And I think you're correct. Most of the big admitted companies also have big ENS operations. To the extent we're seeing increased competition, or where we're seeing increased competition, it's not from admitted, it's generally from MGAs.

Speaker Change: The short answer is no we're not saying.

Speaker Change: Business flow out of E&S and admitted I think youre correct. Most of the admitted companies also had pig.

Speaker Change: S operations.

Speaker Change: To the extent, we are seeing increased competition, our wireless anchorage competition its not from admitted it's generally from mgs.

Speaker Change: Sure.

Michael Patrick Kehoe: understood. Thank you for taking my questions.

Speaker Change: Understood. Thank you for taking my questions.

Speaker Change: Thanks Bill.

Operator: Your next question comes from the line of Pablo Singzon from J.P. Morgan. Your line is open.

Speaker Change: Your next question comes from the line of Pablo <unk> from Jpmorgan. Your line is open.

Pablo Augusto Serrano Singzon: Hi, good morning. First one, just about the conservatism you're adding to your accident, your loss pick. I'm curious, is that justified by the data you're seeing today? In other words, are you sort of assuming a pattern spread between nominal pricing and loss trends? Or are you just adding an extra level of conservatism beyond what you're actually seeing in the data and the loss results?

Pablo: Hi, good morning.

Pablo: First one just about the conservatism, you're adding to your accident year loss pick.

Pablo: I'm just.

Pablo: Justified by the data you're seeing today in other words are you sort of assuming a better spread that the nominal pricing and loss trends or are you just adding an extra level of conservatism beyond what youre actually seeing in the data and the loss results now.

Michael Patrick Kehoe: Well, this is Mike Pablo. Good morning.

Pablo: Well this is Mike Pablo good morning.

Michael Patrick Kehoe: Our actual losses are coming in below expectations. Okay, and that's this quarter, and that's been a trend for a number of years. On the other hand, there's a lot of assumptions in our actuarial model that are forward-looking, such as the loss-cost trend and the like. And, you know, given the heightened inflation in the economy, I think it just injects a little bit more uncertainty. And so we're offsetting that uncertainty with a little bit more conservatism.

Pablo Augusto Serrano Singzon: Our actual losses are coming in below expectations, Okay, and thats this quarter and that's been a trend for a number of years.

Pablo Augusto Serrano Singzon: On the other hand, Theres a lot of assumptions in our actuarial models that are forward looking loss cost trend and alike.

Pablo Augusto Serrano Singzon: <unk>.

Pablo Augusto Serrano Singzon: Given the heightened inflation in the economy I think it just inject a little bit more uncertainty and so we're offsetting that uncertainty with a little bit more conservatism.

Michael Patrick Kehoe: And then just to follow up, Mike, on your comment about actual losses running light here, right? So I think one area where you see that is in your big incurred costs, which have been running low for several years already. And I think that's part of the reason why you've been releasing research from more recent accident years. Um, I guess just sort of like a pushback question here, you know, realizing that the losses have been good, but what gives you the confidence that you're not releasing too prematurely, right?

Pablo Augusto Serrano Singzon: Understood.

Pablo Augusto Serrano Singzon: And then just a follow up Mike on your comment about actual losses running lights here right. So I think one area, where you see that is in your feet incurred which has been running low for several years already.

Pablo Augusto Serrano Singzon: And I think Thats part of the reason why you've been.

Pablo Augusto Serrano Singzon: We are releasing reserves from more recent accident years.

Speaker Change: I guess, just sort of like a pushback question here and are realizing that the losses have been good but what gives you the confidence that youre not releasing few prematurely right, but I think if you ask most other insurers.

Michael Patrick Kehoe: Because I think if you ask most other insurers, they're not touching the more recent accident years yet, right? Even if everyone had, you know, a good run in pricing. So just your thoughts on, you know, what you're trying to do there.

Speaker Change: Not the chain the more recent accident years, yet right, even if everyone had a good run in pricing. So just your thoughts.

Speaker Change: But you are trying to do there.

Michael Patrick Kehoe: Yeah, I would just say we're releasing reserves more slowly than we have in the past. We've called out the 2016 through 2019 accident years repeatedly as an area where, Not overall, but in our long-tail occurrence business, a lot of it's construction related. We've seen those accidents develop years later than we would have anticipated, and, of course, we react to that. You know, there's a whole range of actuarial assumptions you make, you know, as we post our financials every quarter.

Speaker Change: Yes, I would just say we are releasing reserves more slowly than we have in the past.

Speaker Change: We've called out the 2016 through 19 accident years repeatedly had been area, we're not overall, but on our long tail occurrence business a lot of its construction related we've seen.

Speaker Change: Those accident years developed later.

Speaker Change: Then we would have anticipated and of course, we react to that.

Speaker Change: There is a.

Speaker Change: Yes.

Speaker Change: A whole range of actuarial assumptions you make.

Speaker Change: As we.

Speaker Change: Post our financials every quarter and we're always looking at actual loss activity and going back and reviewing and testing those actuarial assumptions.

Michael Patrick Kehoe: And we're always looking at actual loss activity and going back and reviewing and testing those actuarial assumptions. And if there's an area where, hey, we haven't been cautious enough, we correct for that. But in general, on a call like this, where, you know, we can't get into too much granularity because it gets to be such a complex topic.

Speaker Change: And if there is an area, where hey, we havent been cautious enough we correct for that.

Speaker Change: But.

Speaker Change: In general on a call like this where.

Speaker Change: We can't get into too much granularity because it gets to be such a complex topic I think it's really important for investors to know that it's an enormous priority for the management team to post loss reserves today to pay claims in the future.

Michael Patrick Kehoe: I think it's really important for investors to know that it's an enormous priority for the management team to post loss reserves today, to pay claims in the future, and to do that in a conservative fashion so that it's very likely we have more than enough money set aside. That's our goal. You know, we don't haven't batted 1000 on that, but we've been very, very good at it over the, you know, if you will, this is our 15th year in business. So we're trying to extend that good track record, even in the face of, you know, kind of heightened uncertainty with inflation and the like.

Speaker Change: To do that in a conservative fashion, so that it's very likely we have more than enough money set aside.

Speaker Change: That's our goal.

Speaker Change: We don't we haven't batted 1000 on that but we've been very very good at it over the.

Speaker Change: If you will this is our 15th year in business.

Speaker Change: We're trying to extend that good track record even in the face of.

Speaker Change: No.

Speaker Change: Kind of heightened uncertainty with inflation and alike.

Pablo Augusto Serrano Singzon: Yep, understood. And last one, Mike, I might, I'm going to ask you to complicate it a bit here.

Speaker Change: Yes, understood and last one Mike.

I think the basket a bit here, but just given all the reserving issues that are sort of bubbling under the surface now and slowly emerging.

Michael Patrick Kehoe: But just given, you know, all the reserve issues that are sort of bubbling under the surface now and slowly emerging, do you think that creates another pricing leg for casualty? Right? Because clearly, last year was property, but do you think this creates more opportunities and casualties? Thank you. Yeah, I think we're seeing that right.

Speaker Change: Do you think that creates another pricing led for casualty fairly.

Speaker Change: Clearly last year was property, but do you think this creates more opportunities in casualty. Thank you.

Speaker Change: Yes, I think we're seeing that right now.

Michael Patrick Kehoe: Yeah, I think we're seeing that right now, and the deals we're looking at in casualty. Yeah, and I think there's also, you know, this enormous expansion in the delegated underwriting authority market over the last number of years is kind of an interesting anomaly, if you will, in that, normally, hard markets are associated with a contraction in delegated underwriting. In this market, you know, we've had this hard market for the last several years.

Speaker Change: And the deals were for <unk>.

Looking out on casualty.

Speaker Change: Yes, and I think there is also this enormous expansion in the delegated underwriting authority market over the last number of years is kind of an interesting.

Speaker Change: Anomaly, if you will in that normally hard markets are associated with a contraction in delegated underwriting in this market. We've had this hard market the last several years.

Michael Patrick Kehoe: At a time when we've had an expansion in delegated underwriting authorities, and clearly, some of those are very well managed. And, you know, we're not indicting that model of business, even though we're not engaged in it. But there are a lot of those delegated underwriting authorities that can be wildly aggressive in their underwriting and pricing. And we see that as an area for likely future contraction, which I think is bullish for the market. And I think it's bullish for Kinsale, too.

At a time when we've had an expansion in delegated underwriting authority and clearly some of those are.

Speaker Change: Very well managed and.

Speaker Change: We're not in dining that that model of business, even though we're not engaged in it but theres a lot of those delegated underwriting authority and it can be wildly aggressive in their underwriting and pricing and.

Speaker Change: And we see that as an area for a likely future contraction, which I think is bullish for the market and I think its bullish for concessions.

Operator: Understood. Thank you. Thanks, Pablo. Your next question comes from a line called Andrew Andersen from Jeffries. Your line is open.

Speaker Change: Understood. Thank you.

Speaker Change: Thanks Pablo.

Speaker Change: Your next question comes from the line of Andrew Anderson from Jefferies. Your line is open.

Andrew E. Andersen: Hey, thanks for the follow-up. Just wanted to go back to the rate increase number of 7%. Just to be clear, that's what we can think of as a pure rate number, and then we could perhaps add on a few points of exposure that acts as a rate. Yeah, that's correct, and the loss trend against a seven plus a few points would be approximately eight.

Andrew E. Andersen: Hey, Thanks for the follow up just wanted to go back to the rate increase number of 7% just to be clear. That's what we can think of as a pure rate number and then we could perhaps I'll add on a few points of exposure that acts as rate.

Speaker Change: Yes, that's correct.

Speaker Change: And the loss trend against a seven plus a few points would be approximately eight.

Unknown Executive: Hee, I'm sorry to ask that question again.

Speaker Change: I'm sorry ask that.

Speaker Change: Question again.

Unknown Speaker: Unknown Speaker The loss trend that we could apply against the 7% rate plus perhaps a few points of exposure, I think Unknown Speaker Some are four to five persons. Okay, thank you.

Speaker Change: Loss trend that we could apply against the 7% rate plus perhaps a few points of exposure I think in the past.

Speaker Change: Some are four to five personally.

Speaker Change: Okay. Thank you.

Michael Patrick Kehoe: And there are no further questions at this time. I will now turn the call back over to Michael Kehoe for some final closing remarks.

Speaker Change: Thanks, Andrew.

Speaker Change: And there are no further questions at this time I will now turn the call back over to Michael Kehoe for some final closing remarks.

Michael Patrick Kehoe: Okay, well, thanks everybody for joining us, and we look forward to speaking with you again here soon. Have a great day.

Michael Patrick Kehoe: Okay, well, thanks, everybody for joining us and we look forward to speaking with you again soon have a great day.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.

Okay.

Speaker Change: [music].

Speaker Change: Sure.

[music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].